MONETARY POLICY AND FINANCIAL SECTOR DEVELOPMENT: EVIDENCE FROM NIGERIA

Abstract

The research aims to explore how monetary policy impacts the growth of the financial sector in Nigeria. Financial data spanning from 1981 to 2021 was collected from both the Central Bank of Nigeria and the National Bureau of Statistics. Analytical tools including unit root tests, co-integration tests, regression techniques, and Granger causality tests were employed for analysis. The outcomes of the regression analysis demonstrated that both the monetary policy rate and Treasury bill rates have a detrimental effect on the development of Nigeria's financial sector. Conversely, the exchange rate and inflation rate were found to have a positive influence on the growth of the financial sector. As a result, the study concluded that elements such as money supply, treasury bill rates, monetary policy rate, and exchange rate play a significant role in shaping the development of the financial sector during the study period. In light of these findings, the study suggests that maintaining exchange rate stability is vital for fostering economic growth. Consequently, the study recommends that both governmental authorities and monetary institutions should prioritize exchange rate stability by adopting effective exchange rate policies to ensure a steady and reliable exchange rate.